continued Olin Hyde, a local entrepreneur and the CEO of LeadCrunch, said the lack of unicorns is a handicap on San Diego’s startup scene. Without a unicorn, Hyde argues, the local economy will have a hard time attracting the institutional money the hub needs to thrive.
And Hyde isn’t alone. The lack of “big wins” from San Diego tech companies is a favorite target when comparing the city to startup hub giants like Silicon Valley and New York. Trace all of San Diego’s pain points — lack of venture capital, lack of leadership talent, lack of engineers — back far enough and you’ll end up at “no big wins” in software.
Why Should San Diego Want a Unicorn?
There’s both tangible and intangible value for a city that incubates a unicorn. The obvious benefit is jobs for locals and money infused into the community. Where the business cycle used to take years to impact an economy, successful startup funding can take shape almost overnight and give immediate juice to the economy.
The intangibles have more to do with a city’s credibility as a “technology hub,” and what these hubs tend to attract (hint: millennials and more money).
Stockholm, Sweden, for example, is home of the unicorn music-streaming app Spotify. Since the startup reached unicorn status, the region has become a prolific startup hub, attracting capital, incubators, and accelerators. It’s been characterized as the “technology capital of Europe” and “fastest-growing city of Europe.”
Not Necessary, But Helpful
Longtime venture capitalist Jay Lichter isn’t convinced a unicorn is critical to San Diego’s startup hub success.
“I’m not sure it’s necessary, but it certainly helps,” said Lichter, managing partner at Avalon Ventures.
Lichter says the benefit of the unicorn to the local economy is not in its success, but in its inevitable downfall.
“If you’re a billion-dollar company, for example, you’re going to have several hundred software engineers,” Lichter said. “Then when you shrink into a $400 million company, all those engineers will leave and create their own startups.”
Be Careful What You Wish For
As Lichter points out, there’s more to unicorns than fairytale valuations. Most unicorns grow fast, fueled by venture capital and other types of early-stage funding, and then face harsh devaluations once revenue fails to deliver. Raising capital and boosting hype is often the primary concern of a fast-growth startup, and creating revenue comes second (often to their detriment). Twitter and Uber come to mind, along with SnapChat’s fast-declining valuation after going public earlier this month.
Lichter said it’s possible that growing smaller or midmarket companies could be better for building a sustainable startup economy in San Diego.
“If you have a bunch of $100 million companies, that’ a very strong economy,” Lichter said. “And the quality of that revenue is probably better than Uber, where they’re losing money hand over fist.”